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Reserve Bank ends LVR restrictions

The Reserve Bank has decided to remove loan to value ratio restrictions for 12 months in response to the Covid-19 crisis.

Thursday, April 30th 2020, 4:50PM 4 Comments

In an announcement this afternoon, the central bank said the removal of LVR rules would take effect for 12 months. The changes come into effect on May 1.

The RBNZ said the decision was made "to ensure LVR restrictions didn’t have an undue impact on borrowers or lenders as part of the mortgage deferral scheme implemented in response to the Covid-19 pandemic".

The Reserve Bank’s move came after a regulatory impact assessment and "robust feedback" from submitters, after a week long consultation period.

RBNZ deputy governor Geoff Bascand said:

"Although the consultation period was short by the Reserve Bank’s typical standards, this was necessary to respond swiftly to an unprecedented set of economic events. The feedback raised a number of valid points and concerns which were all carefully considered.”

The decision is likely to provide a boost to home buyers, ending restrictions put in place during 2013. Yet advisers say banks may not change their internal LVR controls, rendering the move ineffective.

The Reserve Bank acknowledged concerns "the ability of people to service a mortgage will likely decline in the coming months".

Bascand said the removal of LVR rules took into account concerns about financial stability.

“Given the current uncertainty around the economic outlook, the Reserve Bank considers that it is unlikely that banks will weaken lending standards to high risk borrowers. The more likely risk is that banks are overly cautious with lending to credit-worthy borrowers.”

The Reserve Bank hopes the action "will also avoid any uncertainty around the implications of LVR limits from the mortgage deferral scheme". “It is important banks continue to provide support to credit-worthy borrowers during these extraordinary times," Bascand added.

The central bank will review LVR rules in 12 months' time, Bascand said.

Tags: RBNZ Reserve Bank

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Comments from our readers

On 30 April 2020 at 5:45 pm Laurie said:
Pointless as currently the banks don't want to lend anyway. Yet another case of products politically being on the shelf but in practice not being available.

On 1 May 2020 at 8:48 am valkyrie6 said:
Yes I agree Laurie, a customers loan servicing ability also determines their ability to borrower, job security and income stability are key, plus the bigger the deposit the better to try an avoid any high lend fees banks can charge.
On 1 May 2020 at 9:33 am Skeptical said:
Laurie - that's a very pessimistic outlook. The change is effective for 12 months, whilst people won't be able to use it right away, give it a good month or so when most people are back at work. First home buyers will actually to be able to go to auctions with pre-approvals.
On 1 May 2020 at 4:10 pm Amused said:
As usual it seems that the people in charge at 2 The Terrace Wellington don’t actually understand the numerous restrictions been imposed on our banks nowadays by the likes of APRA etc. when it comes to banks lending money to customers.

Granted this announcement on paper should provide some help towards first home buyers who are currently struggling to enter the market due to a lack of deposit. However as others have stated already banks appetite to lend in the new post COVID-19 environment will be wholly dependent on people having stable jobs and working in industries unlikely to be impacted going forward. We don’t even know yet what the landscape is going to be like for most of our employers in 12, 6 or even 3 months’ time. With some of the banks themselves predicting a 10-15% drop in house prices why would banks now be eager to expose their home loan book to an increase in the number of new high LVR loans approved over the next 12 months?

On the subject of investment property mortgages banks will surely have little appetite to lend much more on these types of loans. Has the Reserve Bank also signalled that the banks will now not need the same higher capital requirements (as mandated currently) to be able to write these investment loans in the first place? Don’t forget the upcoming increased capital holding requirements been imposed on banks by Adrian Orr have only been postponed until July next year. Banks who decide now to let investors perhaps borrow as much as 80% against standalone investment properties will need to make sure they can actually afford to have these loans on their books in the future.

The much bigger reason why banks (and their customers) should be hesitant now to lend/borrow above 70% on any investment property would be the potential impact once the restrictions are reintroduced in 12 months’ time. It’s almost certain the Reserve Bank will again want to stop too many people putting their money back into property. They have been constantly patting themselves on the back over the last couple of years saying that the LVR restrictions are beneficial to the housing market and our economy. If Joe investor who has an existing property portfolio approaches his bank now and manages to borrow 80% against three new investment properties he’ll be ok up until when he comes to sell. At this point once the LVR restrictions are reintroduced his bank is not going to let him have any investment properties still sitting at 80%, they’ll all need to be at or under 70% so that his bank is fully compliant again with the Reserve Bank requirements. Don’t think that banks won’t do this to their customers because they have been doing it the last couple of years. With the above in mind and knowing how careful banks are to ensure they don’t run afoul of the Reserve Bank nowadays I don’t believe we will see banks rushing now to lend more to investors. Looks like the 2nd tier lenders won’t have to worry about some of their market share been potentially eaten into.

This announcement by the Reserve Bank might indeed have some positives on offer for owner occupied borrowers but the banks themselves will ultimately decide what level they want to lend to customers. Banks will also be very conscious that this is a 12 month hiatus only and that the new bank capital requirements whilst postponed are still coming next year. This is window dressing exercise by Adrian Orr.

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Lender Flt 1yr 2yr 3yr
AIA 4.55 2.55 2.69 2.79
ANZ 4.44 ▼2.89 3.25 3.39
ANZ Special - ▼2.29 2.69 2.79
ASB Bank 4.45 ▼2.29 2.59 2.65
Bluestone 3.49 3.34 2.99 3.34
BNZ - Classic - ▼2.29 ▼2.59 2.79
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 ▼2.89 ▼3.19 3.39
BNZ - TotalMoney 4.55 - - -
CFML Loans 4.95 - - -
Lender Flt 1yr 2yr 3yr
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online 2.50 1.99 2.35 2.45
Heretaunga Building Society 4.99 3.50 3.40 -
HSBC Premier 4.49 2.25 2.35 2.65
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 3.69 2.45 2.45 2.65
Kainga Ora 4.43 2.93 3.07 3.24
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.40 ▼3.20 3.50 3.50
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 ▼2.35 2.65 2.65
Liberty 5.69 - - -
Nelson Building Society 4.95 3.20 3.24 -
Pepper Essential 4.79 - - -
Resimac 3.39 3.35 2.99 3.35
Lender Flt 1yr 2yr 3yr
SBS Bank 4.54 2.99 3.09 3.15
SBS Bank Special - 2.49 2.59 2.65
Select Home Loans 3.49 3.34 2.99 3.34
The Co-operative Bank - First Home Special - - - -
The Co-operative Bank - Owner Occ 4.40 2.49 2.69 2.79
The Co-operative Bank - Standard 4.40 2.99 3.19 3.29
TSB Bank 5.34 ▼3.09 3.29 3.59
TSB Special 4.54 ▼2.29 2.49 2.79
Wairarapa Building Society 4.99 3.55 3.49 -
Westpac 4.59 3.09 3.29 3.39
Westpac - Offset 4.59 - - -
Lender Flt 1yr 2yr 3yr
Westpac Special - 2.29 2.69 2.79
Median 4.54 2.89 2.99 2.97

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